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Relaunching securitisation in the EU

 

Relaunching securitisation in the EU

Context

The Covid19 crisis demonstrates each day the essential role played by a well-functioning banking sector. Whenever financial markets collapse, they represent a vital way to swiftly channel funds to the real economy where it is most necessary. Securitisation helps to partially remove credit risk from bank balance sheets, enabling banks to recycle and reallocate capital and strengthen their capital ratios.

Since securitisation products played a significant role in the US subprime mortgage crisis beginning in 2007, despite the reliability of European securitisation markets, a deep overhaul of the framework has been achieved by EU institutions. A regulation includes now due diligence, risk retention and transparency rules in addition to a set of criteria that help identifying simple, transparent and standardised (STS) securitisations.

In parallel specific more risk-sensitive capital requirements for banks and insurance undertakings, reflect the specific features of STS securitisations.

Yet, European securitisation markets have remained subdued. Does the disappointing limited recovery of these markets reflect concerns among investors regarding the risks associated with the securitisation process itself? Or does not it rather suggest that these EU prudential frameworks require urgent attention, should addressing the current unprecedented financing needs require being able in the EU, to permanently strengthen bank balance sheets?

Contributions to the policy debate

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)